• Iran to halt message exchanges with US over Israel
• Oil jumps as Trump tells CNBC: ‘I don’t care’ if Iran negotiations are over
• Dollar opens week boosted by AI enthusiasm, haven demand
• Wall Street records mount, despite Iran uncertainty

Forex

USD was bid as rising tensions in the Middle East saw oil jump on the increasing uncertainty around a possible peace deal. Agreement seems elusive at present and that caused sentiment to dip, though markets had to navigate competing negative and positive headlines. ISM Manufacturing rose to its highest since 2022 and its fifth straight month of expansion. The keenly watched prices paid component eased, though still remained elevated. The data kicks off a packed calendar of economic releases, with the Fed’s other side of the mandate, employment under the spotlight with JOLTS, ADP and NFP all to come this week. Fed speakers are also in focus, which could be interesting after the new Fed Chair said he wants the central bank to ‘think differently’ about inflation. 

EUR dipped but remains in a range and below the 50-day SMA at 1.1657. The 200-day sits above at 1.1680. Today’s Eurozone inflation is the big release of the week in the region and comes after inline to marginally softer countrywide data released last week. 

GBP outperformed its peers with cable moving up above its 50-day SMA at 1.3461 before closing just below. Governor Bailey was on the wires on Friday saying the BoE could look through temporary above-target inflation, as long as second-round effects did not emerge. Markets have softened their expectations for near-term rate hikes with little expected in June or July. The September meeting is priced for about 20bps, with a total 35bps predicted by December.

JPY weakened again as prices in the major edged higher into intervention zone territory. Bullish momentum is picking up with the late April top at 160.72, which is where the MoF last intervened. It spent around $74 billion buying the yen, the largest quarterly FX intervention since 2004. But high oil and US rates have scuppered any prolonged move down in the major. 

Stocks

US Stocks: The S&P 500 added 0.26% to close at 7,600, the Nasdaq closed up 0.6% at 30,514 and the Dow Jones settled higher by 0.09% at 51,084. Sectors were mostly lower with only Tech and Energy higher. Utilities and Consumer Discretionary were the big laggards. Big Tech led the indices to more record highs. Nvidia was the big mag 7 winner as it rose 6.3% after it launched a chip to bring AI to PCs. Microsoft rose 2.3% on the same news whereas competitors like Qualcom, Intel and AMD all fell.  Other chipmakers like Marvell and Micron surged to new all-time highs, adding 6.7% and 7% respectively. The CEO of NVDA Jensen Huang also said AI will boost software demand, which saw Salesforce jump 9.7%, ServiceNow add 9.2% and IBM rose 7.6%. The Software index is back to January levels and nearly flat after the start-of-the-year sell-off. 

Asian Stocks: Futures are mixed. APAC stocks were positive as tech boosted the Nikkei 225 and Kospi to record highs. The ASX 200 was rangebound with weakness in defensives and telecoms only partially offset by tech strength. The Nikkei 225 hit all-time highs above 67,000 as Softbank overtook Toyota as the biggest company in Japan by market cap. The Shanghai Composite and Hang Seng were mixed with the former impacted by mixed China PMI data. 

Gold

Gold bounced off its lows but closed lower even as yields pulled back modestly through the day as Middle East headlines turned a touch more positive. The 200-day is key long-term support at $4,380. 

Day Ahead – Eurozone CPI

Consensus sees the headline ticking up two-tenths to 3.2% and the core to 2.4%. May flash inflation data from Germany, France, Italy and Spain (around 75% of the aggregate print) showed headline inflation rising mainly on the back of energy. France, Italy and Spain came in close to expectations, while German regional CPI surprised on the downside. We note that ‘supercore’ and trimmed mean metrics remain at historically modest levels.  

That said, another 3.2%+ y/y print, or even a slight moderation, will likely not divert the narrative from an ECB ‘insurance’ hike next Thursday. The ECB looks set to raise rates by 25 basis points regardless of these figures, with currently a 95% chance given by money markets. But the outlook beyond is less certain, with traders pricing in 60bps in total for this year, so another 25bbps hike and a 40% chance of a third.

Chart of the Day – EUR/USD messy

The euro bounce from recent lows below 1.16 has been a struggle in recent weeks. The 50-day SMA, now at 1.1665, has offered resistance and formed the upper bound of the short-term rising channel. The RSI has slid away from neutral, hovering just below 50. If prices can pick up some bullish momentum, a major Fib level of the high to low move sits at 1.1667, just below the 200-day SMA above at 1.1680. Medium-term resistance resides around 1.18.